Eurozone GDP grows, with drivers broad-based

ToddBuell

The modest pickup in eurozone economic growth in the final months of last year was aided by rising investment and exports, a boost to hopes that the currency area's recovery will strengthen this year.

The European Union's statistics agency Friday confirmed that the combined gross domestic product of the 18 countries that then used the euro was 0.3% higher in the fourth quarter of last year than in the third--a slight acceleration. Lithuania became the eurozone's 19th member in January.

Eurostat's breakdown of economic activity showed the sources of growth were more broad-based than in the previous quarters of 2014, when consumer spending had been the dominant driver of modest expansions.

Consumer spending slowed in the fourth quarter and made a smaller contribution to growth than in the three months to September. However, investment increased 0.4%, having been flat in the third quarter, while exports also boosted growth, having made no contribution in the third quarter.

Economic data releases since the start of the year suggest the economy may have gained momentum, with business surveys pointing to a pickup in activity, a fall in unemployment and a surge in retail sales.

Typical of those releases are figures for German industrial production released Friday. They recorded a 0.6% increase in output during January.

Encouraged by those indicators, the European Central Bank on Thursday raised its economic forecasts for this year and next in a sign of confidence that the eurozone--one of the global economy's trouble spots in recent years--is gaining strength as the bank launches a EUR1 trillion-plus ($1.1 trillion) stimulus package known as quantitative easing.

But in his news conference, ECB President Mario Draghi highlighted areas of concern. While investment rose in the final three months of last year, it was up a meager 0.3% on the final quarter of 2013.

For eurozone growth to pick up significantly, a sustained rise in investment is needed. But policy makers worry that years of weak growth or contraction have left businesses with low expectations, which are reinforced by the repeated failures of governments to deliver reforms they acknowledge are needed.

Mr. Draghi said that while the ECB has done its part to revive confidence by launching its program of QE, governments have yet to step up to the plate.

"It is crucial that structural reforms be implemented swiftly, credibly and effectively, as this won't only increase the future sustainable growth of the euro area but also raise expectations of higher incomes and encourage firms to increase investment today, bringing forward the economic recovery," he said.

The ECB will be encouraged by the rise in exports during the final three months of last year. The stimulus programs it has announced since May of last year have progressively weakened the euro, which is now trading at an 11-year low against the U.S. dollar.

Its new program of QE, which launches Monday with the first purchases of government bonds, is partly intended to keep the currency weak, supporting a rise in exports that have been hit by a fall in demand from Russia as its economy has slipped into contraction.

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